Can Two Young Entrepreneurs Solve The High Cost Of Hearing?

It’s not an unfamiliar story: There’s a niche market, which despite its relatively large size, goes unnoticed by most entrepreneurs and investors, because, simply put, it’s not sexy. For this and countless other reasons, as time goes by, legacy models and hardware, fragmentation, and high prices prevail. In short, it begs for new blood, new ideas, and a fresh perspective. The same can be said for countless industries, but it’s especially true for many of the markets within the bloated, backwards beast we know as the health industry.

Case in point: Hearing aids. Of the 27 million Americans who qualify for a hearing device, 75 percent choose not to purchase one — only one in seven Americans over 50 years old who need a hearing aid actually wear one. The problem is a sizable one, so former Stanford University classmates Sam Tanzer and Ross Porter decided to do something about it. In November 2011, they founded a startup called Embrace Hearing to apply some entrepreneurial pressure to the situation.

The co-founders tell us the top reason that 75 percent of Americans don’t purchase hearing aids is due to a familiar culprit: High cost. If you take it from CareCredit, hearing aids range in price from $1,000 to $6,000, with the average price being $3,000. And for those who do choose to wear them, the top pain point is the high cost of replacement.

The second reason for the low rate of adoption is the social stigma around wearing hearing aids, as many fear that wearing such a device, simply put, makes them look old. Not altogether untrue, even though we know that hearing loss can occur at any age, and over 50 percent of Americans with hearing loss are between the ages of 45 and 74, which may be on the older end for the tech industry, but hardly what we’d define as elderly. What’s more, studies have routinely linked untreated hearing loss to depression, memory deterioration and even career setbacks.

You may be starting to get an understanding of why this is not a simple problem to tackle. And, really, it’s just the beginning, as the Embrace Hearing co-founders tell us that there’s even more friction when it comes to distribution. Audiologists (health care professionals who specialize in hearing, and the loss thereof) control the majority of sales in the U.S. market. While these specialists provide essential services, they use the sale of hearing aids to their own gain, often charging markups of three to five times — because they can.

Not only that, but the clever business people they are, they bundle re-fittings and follow-up visits into the cost, generally using this as the explanation for why hearing aids cost so much. The Embrace co-founders say that the reality of the situation, however, is that only 20 percent of customers make five or more visits to audiologists in the year after being fitted for the device. For those who fall into that category, the insurance and other benefits might make sense, but for most it doesn’t. On average, Americans return to have their devices checked three times. If you say that costs $100 per visit, if a device costs a total of $700, you’re still at the very low end of the spectrum in terms of overall cost.

Of course, many Americans would rather trust a certified healthcare professional than buy their hearing aids online from people they don’t know. Again, it’s a tough hill to climb, but Embrace Hearing is trying to surmount these obstacles by cutting out the middlemen. The startup provides its customers with support and guidance during the process and works directly with their manufacturer, a Germany-based company that builds their products abroad (in Germany) and in the U.S.

What’s more, Embrace offers three lines of hearing aids, starting at $300, next at $500, and top of the line at $700. Obviously, the whole line prices way below the industry average of $3,000. Because manufacturers tend to have exclusive agreements with audiologists, Tanzer says, they collectively tend to set prices high, but the startup’s German manufacturer only recently decided to enter the market, and as a result, isn’t tied to any exclusive partnerships.

Again, many people who would consider buying a hearing aid online opt for the more expensive alternative of working with an audiologist because they want the options of insurance coverage and follow-up visits. Because Embrace Hearing is early-stage, bootstrapped, and has a small staff, it can’t manage the same kind of support as a licensed professional, but it does offer one free programming during a 45-day trial period if users aren’t satisfied with the initial programming. So that means users can potentially save thousands on the cost of the device and still get one free follow-up, which, while it isn’t perfect, removes a significant amount of friction from buying online.

Of course, Embrace Hearing is not alone in building an online platform for hearing aids. For example, companies like Miracle Ear offer free consultations and testing through an online storefront, and offer more style options compared to Embrace, which just has “over-the-ear” hearing aids. But the site doesn’t list its prices, and its UX makes it look like it, well, sells hearing aids. HearingAidesCentral, another online storefront, doesn’t do much better in terms of UX. Hi HealthInnovations is an improvement, but its products are still far more expensive, and Songbird Hearing just decided to exit the hearing products business altogether.

While selling hearing aids isn’t a sexy business, it doesn’t take much to see the market opportunity here. With some smart marketing and well-branded products, Embrace Hearing could very easily make a play at being the Apple (or Warby Parker) of hearing aids, taking tired designs and clunky models and giving them a smart, design-centric, and user-friendly alternative.

Though it won’t ever be able to offer the same level of services as audiologists, the co-founders are working on an web tool that would allow users to test their hearing right from the site, and thus think they can present an online experience that is similar (and robust) enough to steal a significant share of the market. And judging by the reaction they’ve seen from audiologists, they just might be right. Tanzer said that their model has already been deemed “controversial,” and audiologists are not fans, because it threatens the cushy deal they have going — their model makes price comparisons difficult, and people are likely to opt for prepaid services and the friendly experience of a licensed practitioner.

But the co-founders said that, so far, they’ve been encouraged by the fact that over half of the people that have emailed or called Embrace have gone on to purchase a device from the startup. “We’re comfortable that the value proposition is there, so we want to focus more on socializing that value proposition in the hearing aid community,” Tanzer said.

There’s a long hill to climb, and Embrace Hearing is just getting started, but there’s a chance that two young entrepreneurs with a good idea might just be able to provide the impetus for changing an entire industry. And sexy or not, that’s pretty cool. Hopefully after that they can move on to socializing healthcare in the U.S.